Theoretical Notes on Bubbles and the Current Crisis

Jaume Ventura and Martín, Alberto
Authors registered in the RePEc Author Service: Alberto Martin

No 8038, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We explore a view of the crisis as a shock to investor sentiment that led to the collapse of a bubble or pyramid scheme in financial markets. We embed this view in a standard model of the financial accelerator and explore its empirical and policy implications. In particular, we show how the model can account for: (i) a gradual and protracted expansionary phase followed by a sudden and sharp recession; (ii) the connection (or lack of connection!) between financial and real economic activity and; (iii) a fast and strong transmission of shocks across sectors and countries. We also use the model to explore the role of fiscal policy.

Keywords: Bubbles; Credit constraints; Dynamic inefficiency; Financial accelerator; Financial crisis; Pyramid schemes (search for similar items in EconPapers)
JEL-codes: E32 E44 G01 O40 (search for similar items in EconPapers)
Date: 2010-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Related works:
Journal Article: Theoretical Notes on Bubbles and the Current Crisis (2011)
Working Paper: Theoretical notes on bubbles and the current crisis (2011)
Working Paper: Theoretical notes on bubbles and the current crisis (2011)
Working Paper: Theoretical Notes on Bubbles and the Current Crisis (2010)
Working Paper: Theoretical Notes on Bubbles and the Current Crisis (2010)
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